Audit Criteria for Business & Profession (Sec�on 44AB) AY 2024-25 about:reader?url=h�ps%3A%2F%2Ftaxguru.in%2Fincome-tax%2Faudit-...

taxguru.in

Audit Requirements & Criterion for

Business & Profession (Section 44AB)
Assessment Year 2024-24
CA Lalit Munoyat

18–22 minutes

Introduction: Understanding the audit requirements for businesses and

professions under the Indian Income Tax Act is crucial for compliance
and efficient financial management. Section 44AB of the Income Tax Act
outlines specific conditions under which a tax audit is mandatory. This
article provides a comprehensive guide on the audit requirements and
criteria for businesses and professions for the assessment year
2024-25, detailing various turnover limits, conditions under presumptive
taxation schemes, and special cases that necessitate an audit.

1. To decide if a tax audit is necessary for a business or profession, you

only need to refer to section 44AB of the Income Tax Act. This section
specifies the conditions under which a tax audit is required.

2. Sections 44AD and 44ADA, related to presumptive taxation, offer

additional conditions or benefits but are not the main sections for
determining the need for a tax audit. They are not the primary sections
for tax audit requirements.

3. The rules under sections 44AD and 44ADA are optional and
beneficial. Taxpayers can choose whether to use these sections. Even if

1 of 16 19-10-2024, 16:24
Audit Criteria for Business & Profession (Sec�on 44AB) AY 2024-25 about:reader?url=h�ps%3A%2F%2Ftaxguru.in%2Fincome-tax%2Faudit-...

eligible for the benefits under these sections, opting out does not usually
lead to extra tax audit requirements under section 44AB, unless there is
a break in the continuous period of 5 years of audit after choosing the
presumptive taxation scheme under section 44AD.

4. For a business with a turnover up to Rs. 1 crore, a tax audit is not

needed, regardless of the profit rate declared. The requirement to
declare a minimum of 6% or 8% of the turnover as income does not
apply for turnovers up to Rs. 1 crore to be exempt from a tax audit under
section 44AB(a).

5. Similarly, for specified professionals with gross receipts up to Rs. 50

lakhs, a tax audit is not needed, regardless of the profit rate declared.
The requirement to declare a minimum of 50% of the gross receipts as
income does not apply for gross receipts up to Rs. 50 lakhs. Note that
from April 1, 2024, this limit increases to Rs. 75 lakhs under certain
conditions to be exempt from a tax audit under section 44AB(b).

6. A tax audit is always required if the turnover exceeds Rs. 10 crores for
businesses or Rs. 75 lakhs for specified professionals, regardless of the
profit rate declared as income.

7. If the turnover does not exceed Rs. 2 crores and the taxpayer declares

2 of 16 19-10-2024, 16:24
Audit Criteria for Business & Profession (Sec�on 44AB) AY 2024-25 about:reader?url=h�ps%3A%2F%2Ftaxguru.in%2Fincome-tax%2Faudit-...

6% or 8% of this turnover as income from the business, no tax audit is

required.

Applicability of Tax Audit For Business:

Tax audit is not required if the assessee declares minimum income as

prescribed u/s 44AD under:

a.8% of the total turnover or gross receipts.

b. 6% of the total turnover or gross receipts received via account payee

cheque, bank draft, or electronic clearing system before the tax return
filing due date u/s 139(1)

c. If the cash receipts during the previous year do not exceed 5% of the
total turnover or gross receipts, there will not be any requirement for Tax
Audit for Turnover upto Rs. 3 crore. ( w.e.f. from April 1, 2024)

d. If the cash receipts and payments (including sales and expenses) are
both 5% or less of the total, there will not be any requirement for tax audit
for turnover upto Rs. 10 Crore. (44AB(a)

Applicability of Tax Audit For Specified Professionals:

i. Tax audit shall never apply to specified professionals for Gross

Receipts Upto Rs. 50 Lakhs irrespective of the rate of profit declared by
the assessee. The condition of declaring 50% of the gross receipts as
income of the profession does not apply to professionals for gross
receipts upto Rs. 50 Lakhs for availing exemption from tax audit u/s
44AB(b)

ii. If the cash receipts during the previous year do not exceed 5% of the
total gross receipts, Tax audit will not be applicable to specified
professionals for gross receipts upto Rs. 75 lakh ( w.e.f. from April 1,
2024)

3 of 16 19-10-2024, 16:24
Audit Criteria for Business & Profession (Sec�on 44AB) AY 2024-25 about:reader?url=h�ps%3A%2F%2Ftaxguru.in%2Fincome-tax%2Faudit-...

iii. However, if the income declared is less than 50% of the gross receipts
and the assessee has opted for section 44ADA then tax audit is
mandatory.

8. Tabular Summary of the provisions of Tax Audit A.Y. 2024-25

Clause Description Details

(a) Business Turnover/Receipts Exceeding Limit

1. Turnover exceeding If a person runs a business and their

Rs. 1 Crore total sales, turnover, or gross
receipts exceed 1 crore rupees in
any previous year, they need to get
their accounts audited

2. Reduced Cash If cash receipts and payments

Transactions (including sales and expenses) are
Exception both 5% or less of the total, the audit
requirement threshold increases to
10 crore rupees instead of 1 crore
rupees.

3. Non-Account Payee Payments/receipts by non-account

Cheques Treated as payee cheques are treated as cash
Cash and included in the 5% limit.

4. Presumptive Taxation This section does not apply to a

Exception person who declares profits and
gains for the previous year in
accordance with subsection (1) of
section 44AD.

5. Presumptive Income for Eligible Assessee/Eligible

4 of 16 19-10-2024, 16:24
Audit Criteria for Business & Profession (Sec�on 44AB) AY 2024-25 about:reader?url=h�ps%3A%2F%2Ftaxguru.in%2Fincome-tax%2Faudit-...

Business u/s 44AD

Eligible Assessee: 1. An individual, Hindu Undivided

Family (HUF), or partnership firm
(not LLP) who is a resident.

2. Who has not claimed deductions

under sections 10A, 10AA, 10B,
10BA, or Chapter VIA deductions in
respect of certain incomes in the
relevant year.

Eligible Business: 1. Any business except the business

of plying, hiring, or leasing goods
carriages under section 44AE.

2. The business’s total turnover or

gross receipts in the previous year
should not exceed 2 crore rupees.

3. If the cash receipts during the

previous year do not exceed 5% of
the total turnover or gross receipts,
the limit increases to 3 crore
rupees. (w.e.f 01-04-24)

Deemed Profit: 1. 8% of the total turnover or gross

receipts for the previous year will be
deemed as the profits and gains of
the business and taxed accordingly.

2. If the total turnover or gross

receipts are received via account
payee cheque, bank draft, or

5 of 16 19-10-2024, 16:24
Audit Criteria for Business & Profession (Sec�on 44AB) AY 2024-25 about:reader?url=h�ps%3A%2F%2Ftaxguru.in%2Fincome-tax%2Faudit-...

electronic clearing system before

the tax return filing due date, the rate
is reduced to 6% instead of 8%.

3. Non-account payee cheques or

drafts are considered as cash
receipts for this purpose.

Non-Eligible 1. Professionals covered under

Assessees & section 44AA(1).
Businesses
2. Persons earning income as
commission or brokerage.

3. Persons carrying on agency

business.

(b) Professional Gross Receipts Exceeding Limit

Gross Receipts 1. If the assessee practices a

exceed Rs. 50 lakh profession and their gross receipts
exceed 50 lakh rupees in any
previous year, they need to get their
accounts audited.

Presumptive 2. This section does not apply to a

Taxation Exception person who declares profits and
gains for the previous year in
accordance with subsection (1) of
section 44ADA.

Presumptive Income for Eligible Professionals

Eligible Assessee 1. An individual or a partnership firm

(other than an LLP), who is a

6 of 16 19-10-2024, 16:24
Audit Criteria for Business & Profession (Sec�on 44AB) AY 2024-25 about:reader?url=h�ps%3A%2F%2Ftaxguru.in%2Fincome-tax%2Faudit-...

resident in India,

2. is engaged in a profession
mentioned in section 44AA(1), and
their gross receipts do not exceed
50 lakh rupees in a previous year,
then:

Deemed Profit 1. 50% of the total gross receipts

will be deemed as the profits and
gains of the profession, which will be
taxed under “Profits and gains of
business or profession”.

2. Alternatively, if the assessee

claims to have earned a higher
amount, that amount will be
considered as the profits and gains.

Increased Limit for 1. If the cash receipts during the

Low Cash previous year do not exceed 5% of
Transactions: the total gross receipts, the limit for
gross receipts increases from 50
lakh rupees to 75 lakh rupees
(effective from April 1, 2024).

Non-Account Payee 2. Non-account payee cheques or

Cheques Treated as bank drafts are considered as cash
Cash receipts for the above purpose.

(c) Special Cases for If the business profits are deemed

Business Profits under sections 44AE, 44BB, or
Deemed Under 44BBB, and the assessee claims

7 of 16 19-10-2024, 16:24
Audit Criteria for Business & Profession (Sec�on 44AB) AY 2024-25 about:reader?url=h�ps%3A%2F%2Ftaxguru.in%2Fincome-tax%2Faudit-...

Sections 44AE, their income is lower than the

44BB, 44BBB deemed profits, they need to get
their accounts audited.

(d) Special Cases for If the professional profits are

Professional Profits deemed under section 44ADA, and
Deemed Under the assessee claims their income is
Section 44ADA lower than the deemed profits, and
their income exceeds the maximum
non-taxable limit, they need to get
their accounts audited.

(e) Special Cases for If section 44AD(4) applies to the

Business Under business, and the income of the
Section 44AD assessee exceeds the maximum
non-taxable limit, they need to get
their accounts audited.

6. Exclusion for 1. This section does not apply to

Certain Incomes persons who derive income as
(Section 44B and specified under:
Section 44BBA)
2. Section 44B (income from
shipping business of non-residents).

3. Section 44BBA (income from the

operation of aircraft by non-
residents).

4. This exclusion is effective from

April 1, 1985, or the date these
sections came into force, whichever
is later.

8 of 16 19-10-2024, 16:24
Audit Criteria for Business & Profession (Sec�on 44AB) AY 2024-25 about:reader?url=h�ps%3A%2F%2Ftaxguru.in%2Fincome-tax%2Faudit-...

7. Compliance with 1. If a person is required to get their

Other Laws accounts audited under any other
law, it is enough to comply with this
section if:

2. The person gets their business or

profession accounts audited as
required by that other law before the
specified date.

3. They submit the audit report

required by that other law by the
specified date.

4. They also submit an additional

report by an accountant in the form
prescribed under this section.

Tabular Summary of the Criterion for Tax Audit Applicability AY

2024-25

Condition Details

1. Turnover up Tax audit shall never apply for turnover up to Rs. 1

to Rs. 1 Crore Crore for business, irrespective of the rate of profit
declared by the assessee. The condition of
declaring 6% or 8% of the turnover as income of
the business does not apply to turnover up to Rs.
1 Crore for availing exemption from tax audit u/s
44AB(a).

2. Turnover Tax audit will not be applicable under the following

exceeds Rs. 1 conditions:

9 of 16 19-10-2024, 16:24
Audit Criteria for Business & Profession (Sec�on 44AB) AY 2024-25 about:reader?url=h�ps%3A%2F%2Ftaxguru.in%2Fincome-tax%2Faudit-...

Crore but does

If the turnover does not exceed Rs. 2 Crores and
not exceed Rs.
the assessee declares the following as income
10 Crores
from the business, then no tax audit is required:

1. 8% of the total turnover or gross receipts.

2. 6% of the total turnover or gross receipts

received via account payee cheque, bank draft, or
electronic clearing system before the tax return
filing due date u/s 139(1).

3. If the cash receipts during the previous year do

not exceed 5% of the total turnover or gross
receipts, there will not be any requirement for tax
audit for turnover up to Rs. 3 Crores (w.e.f.
April 1, 2024).

4. If the cash receipts and payments (including

sales and expenses) are both 5% or less of the
total, there will not be any requirement for tax audit
for turnover up to Rs. 10 Crores (44AB(a)).

3. Turnover Tax audit shall always be applicable.

exceeding Rs.
10 Crores

4. Specified Professionals

1. Tax audit shall never apply for gross receipts up

to Rs. 50 Lakhs, irrespective of the rate of profit
declared by the assessee. The condition of
declaring 50% of the turnover as income of the
profession does not apply to professionals for

10 of 16 19-10-2024, 16:24
Audit Criteria for Business & Profession (Sec�on 44AB) AY 2024-25 about:reader?url=h�ps%3A%2F%2Ftaxguru.in%2Fincome-tax%2Faudit-...

gross receipts up to Rs. 50 Lakhs for availing

exemption from tax audit u/s 44AB(b).

2. If the cash receipts during the previous year do

not exceed 5% of the total gross receipts, tax
audit will not be applicable for gross receipts up to
Rs. 75 Lakhs (w.e.f. April 1, 2024).

5. Tax Audit for Default in Applicable Conditions

1. If the professional profits are deemed under

section 44ADA, and the assessee claims their
income is lower than the deemed profits, and their
income exceeds the maximum non-taxable limit,
they need to get their accounts audited (44AB(d)).

2. If an assessee declared their profit according to

section 44AD for a given year but does not
declare their profit according to this section for any
of the next five years, they will not be allowed to
use the benefits of this section for the next five
years after the year in which they did not comply.
Accordingly, tax audit will be applicable (44AB(e)).

Section 44AB: Descriptive provisions for Audit Requirements for

Business and Profession

Assessment Year 2024-25

1. Clause (a): Business Turnover/Receipts Exceeding Limit

If a person run a business and your total sales, turnover, or gross

receipts exceed 1 crore rupees in any previous year, you need to get
your accounts audited.

11 of 16 19-10-2024, 16:24
Audit Criteria for Business & Profession (Sec�on 44AB) AY 2024-25 about:reader?url=h�ps%3A%2F%2Ftaxguru.in%2Fincome-tax%2Faudit-...

1. 1 Reduced Cash Transactions Exception:

If the cash receipts and payments (including sales and expenses) are
both 5% or less of the total, the audit requirement threshold increases to
10 crore rupees instead of 1 crore rupees.

1.2 Payment/Receipts by Non-Account Payee Cheques is Treated as

Cash and included in limit of 5%

1.3 This section shall not apply to a person, who declares profits and
gains for the previous year in accordance with the provisions of
subsection (1) of section 44AD i.e. Presumptive Taxation.

1.4 Presumptive Income for Eligible Assessee/Eligible Business u/s

44AD

2. Eligible Assessee:

2.1 An individual, Hindu Undivided Family (HUF), or partnership firm (not

LLP) who is a resident.

2.2 Who has not claimed deductions under sections 10A, 10AA, 10B,
10BA, or Chapter VIA deductions in respect of certain incomes in the
relevant year.

3. Eligible Business:

3.1 Any business except the business of plying, hiring, or leasing goods
carriages under section 44AE.

3.2 The business’s total turnover or gross receipts in the previous year
should not exceed 2 crore rupees.

3.3 If the cash receipts during the previous year do not exceed 5% of the
total turnover or gross receipts, the limit increases to 3 crore rupees.
(w.e.f 04-04-24)

4. Deemed Profit:

12 of 16 19-10-2024, 16:24
Audit Criteria for Business & Profession (Sec�on 44AB) AY 2024-25 about:reader?url=h�ps%3A%2F%2Ftaxguru.in%2Fincome-tax%2Faudit-...

4.1 8% of the total turnover or gross receipts for the previous year will be
deemed as the profits and gains of the business and taxed accordingly.

4.2 However, if the total turnover or gross receipts are received via
account payee cheque, bank draft, or electronic clearing system before
the tax return filing due date, the rate is reduced to 6% instead of 8%.

4.3 For this purpose, non-account payee cheques or drafts are

considered as cash receipts.

5. Non Eligible Assessees & Non Eligible Business for Presumptive

Taxation

5.1 Professionals covered under section 44AA(1).

5.2 Persons earning income as commission or brokerage.

5.3 Persons carrying on agency business

6. Clause (b): Professional Gross Receipts Exceeding Limit

6.1 If the assessee practice a profession and his gross receipts exceed
50 lakh rupees in any previous year, he need to get his accounts
audited.

6.2 However, this section/condition shall not apply to a person, who

declares profits and gains for the previous year in accordance with the
provisions of subsection (1) of section 44ADA.

6.3 Presumptive Income for Eligible Professionals

• If an individual or a partnership firm (other than an LLP), who is a resident

in India, is engaged in a profession mentioned in section 44AA(1), and
his gross receipts do not exceed 50 lakh rupees in a previous year, then:

• 50% of the total gross receipts will be deemed as the profits and gains of
the profession, which will be taxed under “Profits and gains of business
or profession”.

13 of 16 19-10-2024, 16:24
Audit Criteria for Business & Profession (Sec�on 44AB) AY 2024-25 about:reader?url=h�ps%3A%2F%2Ftaxguru.in%2Fincome-tax%2Faudit-...

• Alternatively, if the assessee claims to have earned a higher amount,

that amount will be considered as the profits and gains.

6.4 Increased Limit for Low Cash Transactions

• If the cash receipts during the previous year do not exceed 5% of the
total gross receipts, the limit for gross receipts increases from 50 lakh
rupees to 75 lakh rupees. ( w.e.f. from April 1, 2024)

• Non-Account Payee Cheques Considered as Cash

6.5 For the above purpose, non-account payee cheques or bank drafts
are considered as cash receipts.

7. Clause (c): Special Cases for Business Profits Deemed Under

Sections 44AE, 44BB, 44BBB

If the business profits are deemed under sections 44AE, 44BB, or

44BBB, and the assessee claim his income is lower than the deemed
profits, he needs to get his accounts audited.

8. Clause (d ): Special Cases for Business Profits Deemed Under

Sections 44AE, 44BB, 44BBB

If the professional profits are deemed under section 44ADA, and the
assessee claim his income is lower than the deemed profits, and his
income exceeds the maximum non-taxable limit, he needs to get his
accounts audited.

9. Clause (e ): Special Cases for Business under Section 44AD

If section 44AD(4) applies to the business, and the income of the

assessee exceeds the maximum nontaxable limit, he need to get his
accounts audited. As per section 44AD(4) If an eligible assessee
declares his profit according to this section for a given year but does not
declare his profit according to this section for any of the next five years,

14 of 16 19-10-2024, 16:24
Audit Criteria for Business & Profession (Sec�on 44AB) AY 2024-25 about:reader?url=h�ps%3A%2F%2Ftaxguru.in%2Fincome-tax%2Faudit-...

they he will not be allowed to use the benefits of this section for the next
five years after the year in which he did not comply.

10. Exclusion for Certain Incomes (Section 44B and Section

44BBA)

This section does not apply to persons who derive income as specified
under:

• Section 44B (income from shipping business of non-residents)

• Section 44BBA (income from the operation of aircraft by non- residents)

• This exclusion is effective from April 1, 1985, or the date these sections
came into force, whichever is later.

11. Compliance with Other Laws

• If a person is required to get their accounts audited under any other law, it
is enough to comply with this section if:

• The person gets their business or profession accounts audited as

required by that other law before the specified date.

• They submit the audit report required by that other law by the specified
date.

• They also submit an additional report by an accountant in the form

prescribed under this section.

Conclusion: Navigating the audit requirements under Section 44AB for

the assessment year 2024-25 involves understanding various turnover
limits, presumptive taxation schemes, and special conditions. Proper
compliance ensures smoother financial operations and avoids penalties.
Taxpayers should consult with tax professionals to determine their
specific audit obligations based on their turnover, transaction nature, and
chosen taxation scheme.

15 of 16 19-10-2024, 16:24
Audit Criteria for Business & Profession (Sec�on 44AB) AY 2024-25 about:reader?url=h�ps%3A%2F%2Ftaxguru.in%2Fincome-tax%2Faudit-...

*****

Disclaimer: The information presented in this article has been compiled

from sources available in the public domain. While every effort has been
made to ensure the accuracy and reliability of the content, the author
make no representations or warranties of any kind, express or implied,
about the completeness, accuracy, reliability, suitability, or availability
with respect to the article or the information contained in the article for
any purpose. Any reliance you place on such information is therefore
strictly at your own risk. The author will not be liable for any loss or
damage, including without limitation, indirect or consequential loss or
damage, or any loss or damage whatsoever arising from loss of data or
profits arising out of, or in connection with, the use of this article.

16 of 16 19-10-2024, 16:24